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Strategic competition

Summary

Strategic competition is a commitment within an organization or polity to make a very large change in competitive relationships. One of the main principles of strategic competition is that the response of an organization regarding another one's introduction of a new product defines the impact of such in the market. This type of competition has proven itself useful when trying to explain a firm's executive compensation schemes, leading to time compensation.[1][2]

Within a market where strategic competition is present, investment provides a much bigger capability of taking advantage of future opportunities of growth which also implies obtaining a greater market share. If such interaction between rivals is efficiently used, even all actors of the industry in which strategic competition was applied may be compensated on their profits. This is implemented either by putting entry barriers to new competitors or to dissuading others from 'making space' for stronger ones.[3][4]

Also, the application of strategic competition may lead to outsourcing activities used by rival firms involved in the process.[5]

Basic elements edit

Strategic competition consists of five basic elements:

  • To comprehend competitive interaction as a dynamic system.
  • To use such comprehension in order to forecast the effects that any intervention can produce in that system.
  • To dispose of many uncommitted resources that can be applied to different purposes.
  • To predict the risk and return with enough accuracy for justifying the use of these resources.
  • To possess the necessary will to set the actions that must be fulfilled towards such commitment.[1]

In order for strategic competition to be successful, the analysis of these elements require a constant update of the firm's environment, considering that this type of competition possesses a rapidly evolving nature. Despite this, the shift from natural to strategic competition is a long process that might require generations to be fully implemented by a certain market.[1][6]

Models edit

According to economics professor Timothy Van Zandt, there exist two models of strategic competition: competition in quantities between firms producing perfect substitutes and competition between firms producing substitute goods by price.[7]

Other uses edit

Not only strategic competition is applied to the business area but also to other ones such as political science and international relations as well as a process to apply public policies. Even geopolitics and military, and many other areas that involve many actors that struggle for leadership or power, may use this approach.[1]

This happens because such kind of competition brings about distinctive outcomes linked to capital structure.[8] For example, the current status of Syria have provided a fertile terrain for strategic competition of the many actors involved in the conflict. This element is likely to persist well beyond any formal resolution of the current situation there.[9]

United States government edit

Strategic competition is often used by the United States government to describe the economic and geopolitical competition between the U.S. and the People's Republic of China.[10]

In 2021, the U.S. Department of Defense changed their description of competition with China from 'great power competition' to that of 'strategic competition.'[11]

Further reading edit

  • Paul van Hooft - University of Amsterdam: Multipolarity, Multilateralism, and Strategic Competition ERASMUS Mundus Joint Doctorate-2010
  • Edmark, K. (2007). Strategic competition in Swedish local spending on childcare, schooling and care for the elderly. Institute for Labour Market Policy Evaluation.

References edit

  1. ^ a b c d Stern, Carl; Deimler, Michael (2006). The Boston Consulting Group on Strategy. New Jersey, USA: John Wiley & Sons, Inc. pp. 2–7. ISBN 978-0-471-75722-1.
  2. ^ Chen, Sheng-Syan; Ho, Kim Wai; Ik, Kueh Hwa; Lee, Cheng-few (2002-01-01). "How Does Strategic Competition Affect Firm Values? A Study of New Product Announcements". Financial Management. 31 (2): 67–84. doi:10.2307/3666223. JSTOR 3666223.
  3. ^ Boyer, Marcel; Gravel, Éric; Lasserre, Pierre (May 2004). "Real Options and Strategic Competition: A survey" (PDF). Real Options. Retrieved 9 May 2017.
  4. ^ Aggarwal, Rajesh K.; Samwick, Andrew A. (1999). "Executive Compensation, Strategic Competition, and Relative Performance Evaluation: Theory and Evidence" (PDF). Journal of Finance. 54 (6): 1999–2043. doi:10.1111/0022-1082.00180. S2CID 154817522.
  5. ^ Chen, Yutian; Dubey, Pradeep; Sen, Debapriya (2011). "Outsourcing Induced by Strategic Competition". International Journal of Industrial Organization. 29 (4): 484–492. CiteSeerX 10.1.1.531.695. doi:10.1016/j.ijindorg.2010.10.001. S2CID 13409054.
  6. ^ Bess, J. Randall (2001). "The Building of Strategic Capabilities for Sustainable Competitive Advantage: Case Studies in the New Zealand Seafood Industry" (PDF). Massey University. Retrieved 9 May 2017.
  7. ^ Van Zandt, Timothy (August 2012). "Firms, Prices, And Markets" (PDF). INSEAD. Retrieved 9 May 2017.
  8. ^ Thu Thuy, Nguyen (2008). Capital Structure, Strategic Competition and Governance. Erasmus Research Institute of Management. ISBN 978-90-5892-178-9.
  9. ^ Martini, Jeffrey (2013). "Syria as an Arena of Strategic Competition" (PDF). RAND Corporation. Retrieved 9 May 2017.
  10. ^ Ming-Te, Hung; Tai-Ting, Tony Liu (2011). "Sino.U.S. Strategic Competition in Southeast Asia: China's Rise and U.S. Foreign Policy" (PDF). Political Perspectives. Retrieved 9 May 2017.
  11. ^ "Pentagon's Joint Concept for Competing". USNI News. 2023-03-09. Retrieved 2023-03-19.

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